The state’s capacity to collect and expend revenues underpins its ability to deliver basic services to its citizens, including security, social services and infrastructure. This chapter analyzes how governments can overcome a vicious circle of corruption in public resource management and a resulting loss of trust, to use public finance systems to reinforce a virtuous cycle for strengthening sovereignty. External aid that bypasses the public finance system, however, can undermine efforts to build state capacity, turning a potentially virtuous cycle into a vicious one. Interventions led by the international community often undermine state-building efforts by channelling funds outside the government and relying on parallel mechanisms of their own creation. An alternative approach should place the public finance system at the center of international state-building interventions.

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